At the End of 20X0
Schedule 1. Calculation of the machine's value in use at the end of 20X0
Year    Future cash flows CU    Discounted at 14% CU
20X1    22,165    (1)    19,443
20X2    21,450    (1)    16,505
20X3    20,550    (1)    13,871
20X4    24,725    (1)(2)    14,639
20X5    25,325    (1)(3)    13,153
20X6    24,825    (1)(3)    11,310
20X7    24,123    (1)(3)    9,640
20X8    25,533    (1)(3)    8,951
20X9    24,234    (1)(3)    7,452
20X10    22,850    (1)(3)    6,164
Value in use              121,128
(1) Includes estimated costs necessary to maintain the level of economic benefit expected to arise from the machine in its current condition.
(2) Excludes estimated costs to enhance the machine's performance reflected in management budgets.

(3) Excludes estimated benefits expected from enhancing the machine's performance reflected in management budgets.
A58. The machine's recoverable amount (value in use) is less than its carrying amount. Therefore, F recognises an impairment loss for the machine.
Schedule 2. Calculation of the impairment loss at the end of 20X0
     Machine CU
Carrying amount before impairment loss    150,000
Recoverable amount (Schedule 1)    121,128
Impairment loss    (28,872)
Carrying amount after impairment loss    121,128
Years 20X1 - 20X3
A59. No event occurs that requires the machine's recoverable amount to be re-estimated. Therefore, no calculation of recoverable amount is required to be performed.

At the End of 20X4
A60. The costs to enhance the machine's performance are incurred. Therefore, in determining the machine's value in use, the future benefits expected from enhancing the machine's performance are considered in forecasting cash flows. This results in an increase in the estimated future cash flows used to determine value in use at the end of 20X0. As a consequence, in accordance with paragraphs 95 and 96 of IAS 36, the recoverable amount of the machine is recalculated at the end of 20X4.
Schedule 3. Calculation of the machine's value in use at the end of 20X4
Year    Future cash flows (1) CU    Discounted at 14% CU
20X5    30,321    26,597
20X6    32,750    25,200
20X7    31,721    21,411
20X8    31,950    18,917
20X9    33,100    17,191
20X10    27,999    12,756
Value in use        122,072
(1) Includes estimated benefits expected from enhancing the machine's performance reflected in management budgets

A61. The machine's recoverable amount (ie value in use) is higher than the machine's carrying amount and depreciated historical cost (see Schedule 4). Therefore, K reverses the impairment loss recognised for the machine at the end of 20X0 so that the machine is carried at depreciated historical cost.
Schedule 4. Calculation of the reversal of the impairment loss at the end of 20X4
     Machine CU
Carrying amount at the end of 20X0 (Schedule 2)    121,128
End of 20X4    
Depreciation charge (20X1 to 20X4 - Schedule 5)    (48,452)
Costs to enhance the asset's performance    25,000
Carrying amount before reversal    97,676
Recoverable amount (Schedule 3)    122,072
Reversal of the impairment loss    17,324
Carrying amount after reversal    115,000
Carrying amount: depreciated historical cost (Schedule 5)    115,000(1)

(1) The value in use of the machine exceeds what its carrying amount would have been at depreciated historical cost. Therefore, the reversal is limited to an amount that does not result in the carrying amount of the machine exceeding depreciated historical cost.
Schedule 5. Summary of the carrying amount of the machine
Year    Depreciated historical cost CU    Recoverable amount CU    Adjusted depreciation charge CU    Impairment loss CU    Carrying amount after impairment CU
20X0    150,000    121,128    0    (28,872)    121,128
20X1    135,000    nc    (12,113)    0    109,015
20X2    120,000    nc    (12,113)    0    96,902
20X3    105,000    nc    (12,113)    0    84,789
20X4    90,000        (12,113)        
enhancement    25,000        -        
     115,000    122,072    (12,113)    17,324    115,000
20X5    95,833    nc    (19,167)    0    95,833
In the IASC Basis for Conclusions, in paragraph B14(b)(ii) a footnote is inserted after "incurred" at the end of the penultimate sentence, as follows:
* IAS 16 Property, Plant and Equipment as revised by the IASB in 2003 requires all subsequent costs to be covered by its general recognition principle and eliminated the requirement to reference the originally assessed standard of performance. IAS 36 was amended as a consequence of the change to IAS 16.

Approval of IAS 36 by the Board
International Accounting Standard 36 Impairment of Assets was approved for issue by eleven of the fourteen members of the International Accounting Standards Board. Messrs Cope and Leisenring and Professor Whittington dissented. Their dissenting opinions are set out after the Basis for Conclusions on IAS 36.
Sir David Tweedie Chairman
Thomas E Jones Vice-Chairman
Mary E Barth
Hans-Georg Bruns
Anthony T Cope
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O'Malley
Harry K Schmid
John T Smith
Geoffrey Whittington
Tatsumi Yamada

Basis for Conclusions on IAS 36 Impairment of Assets
Contents
INTRODUCTION BC1-BC3
SCOPE BCZ4-BCZ8
MEASURING RECOVERABLE AMOUNT BCZ9-BCZ30
Recoverable amount based on the sum of undiscounted cash flows BCZ12-BCZ13
Recoverable amount based on fair value BCZ14-BCZ20
Recoverable amount based on value in use BCZ21-BCZ22
Recoverable amount based on the higher of net selling price* and value in use BCZ23-BCZ27
Assets held for disposal BCZ27
Other refinements to the measurement of recoverable amount BCZ28-BCZ30
Replacement cost as a ceiling BCZ28-BCZ29
Appraisal values BCZ30
* In IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, issued by the IASB in 2004, the term, 'net selling price' was replaced in IAS 36 by 'fair value less costs to sell'.
NET SELLING PRICE BCZ31-BCZ39
Net realisable value BCZ37-BCZ39
VALUE IN USE BCZ40-BC80
Expected value approach BCZ41-BCZ42
Future cash flows from internally generated goodwill and synergy with other assets BCZ43-BCZ45
Value in use estimated in a foreign currency BCZ46-BCZ51
Discount rate BCZ52-BCZ55
Additional guidance included in the Standard in 2004 BC56-BC80
Elements reflected in value in use BC56-BC61
Estimates of future cash flows BC62-BC75
Using present value techniques to measure value in use BC76-BC80
INCOME TAXES BCZ81-BC94
Consideration of future tax cash flows BCZ81-BCZ84
Determining a pre-tax discount rate BCZ85
Interaction with IAS 12 BCZ86-BCZ89
Comments by field visit participants and respondents to the December 2002 Exposure Draft BC90-BC94
RECOGNITION OF AN IMPAIRMENT LOSS BCZ95-BCZ112
Recognition based on a 'permanent' criterion BCZ96-BCZ97
Recognition based on a 'probability' criterion BCZ98-BCZ104
Sum of undiscounted future cash flows (without interest costs) BCZ99-BCZ102
Probability criterion based on IAS 10 (reformatted 1994) BCZ103-BCZ104
Recognition based on an 'economic' criterion BCZ105-BCZ107
Revalued assets: recognition in the income statement versus directly in equity BCZ108-BCZ112
CASH-GENERATING UNITS BCZ113-BC118
Internal transfer pricing BC116-BC118
TESTING INDEFINITE-LIVED INTANGIBLES FOR IMPAIRMENT BC119-BC130
Frequency and timing of impairment testing BC121-BC128
Carrying forward a recoverable amount calculation BC127-BC128
Measuring recoverable amount and accounting for impairment losses and reversals of impairment losses BC129-BC130
TESTING GOODWILL FOR IMPAIRMENT BC131-BC177
Allocating goodwill to cash-generating units BC137-BC159
Completing the initial allocation of goodwill BC151-BC152
Disposal of a portion of a cash-generating unit containing goodwill BC153-BC156
Reorganisation of reporting structure BC157-BC159
Recognition and measurement of impairment losses BC160-BC170
Background to the proposals in the Exposure Draft BC160-BC164
The Board's redeliberations BC165-BC170
Timing of impairment tests BC171-BC177
Sequence of impairment tests BC174-BC175
Carrying forward a recoverable amount calculation BC176-BC177
ALLOCATING AN IMPAIRMENT LOSS BETWEEN THE ASSETS OF A CASH-GENERATING UNIT BCZ178-BCZ181
REVERSING IMPAIRMENT LOSSES FOR ASSETS OTHER THAN GOODWILL BCZ182-BCZ186
REVERSING GOODWILL IMPAIRMENT LOSSES BC187-BC191
DISCLOSURES FOR CASH-GENERATING UNITS CONTAINING GOODWILL OR INDEFINITE-LIVED INTANGIBLES BC192-BC209
Background to the proposals in the Exposure Draft BC192-BC204
Subsequent cash flow test BC195-BC198
Including disclosure requirements in the revised Standard BC199-BC204
The Board's redeliberations BC205-BC209
TRANSITIONAL PROVISIONS BC210-BC228
Transitional impairment test for goodwill BC216-BC222
Transitional impairment test for indefinite-lived intangibles BC223-BC226
Early application BC227-BC228

SUMMARY OF MAIN CHANGES FROM THE EXPOSURE DRAFT BC229
HISTORY OF THE DEVELOPMENT OF A STANDARD ON IMPAIRMENT OF ASSETS BCZ230-BCZ233
Basis for Conclusions on IAS 36 Impairment of Assets
The International Accounting Standards Board revised IAS 36 as part of its project on business combinations. It was not the Board's intention to reconsider as part of that project all of the requirements in IAS 36.
The previous version of IAS 36 was accompanied by a Basis for Conclusions summarising the former International Accounting Standards Committee's considerations in reaching some of its conclusions in that Standard. For convenience the Board has incorporated into its own Basis for Conclusions material from the previous Basis for Conclusions that discusses (a) matters the Board did not reconsider and (b) the history of the development of a standard on impairment of assets. That material is contained in paragraphs denoted by numbers with the prefix BCZ. Paragraphs describing the Board's considerations in reaching its own conclusions are numbered with the prefix BC.

Introduction
BC 1 This Basis for Conclusions summarises the International Accounting Standards Board's considerations in reaching the conclusions in IAS 36 Impairment of Assets. Individual Board members gave greater weight to some factors than to others.
BC 2 The International Accounting Standards Committee (IASC) issued the previous version of IAS 36 in 1998. It has been revised by the Board as part of its project on business combinations. That project has two phases. The first has resulted in the Board issuing simultaneously IFRS 3 Business Combinations and revised versions of IAS 36 and IAS 38 Intangible Assets. Therefore, the Board's intention in revising IAS 36 as part of the first phase of the project was not to reconsider all of the requirements in IAS 36. The changes to IAS 36 are primarily concerned with the impairment tests for intangible assets with indefinite useful lives (hereafter referred to as 'indefinite-lived intangibles') and goodwill. The Board has not deliberated the other requirements in IAS 36. Those other requirements will be considered by the Board as part of a future project on impairment of assets.
BC 3 The previous version of IAS 36 was accompanied by a Basis for Conclusions summarising IASC's considerations in reaching some of its conclusions in that Standard. For convenience, the Board has incorporated into this Basis for Conclusions material from the previous Basis for Conclusions that discusses matters the Board did not consider. That material is contained in paragraphs denoted by numbers with the prefix BCZ. The views expressed in paragraphs denoted by numbers with the prefix BCZ are those of IASC.
Scope
(paragraph 2)
BCZ 4 IAS 2 Inventories requires an enterprise to measure the recoverable amount of inventory at its net realisable value. IASC believed that there was no need to revise this requirement because it was well accepted as an appropriate test for recoverability of inventories. No major difference exists between IAS 2 and the requirements included in IAS 36 (see paragraphs BCZ37-BCZ39).
BCZ 5 IAS 11 Construction Contracts and IAS 12 Income Taxes already deal with the impairment of assets arising from construction contracts and deferred tax assets respectively. Under both IAS 11 and IAS 12, recoverable amount is, in effect, determined on an undiscounted basis. IASC acknowledged that this was inconsistent with the requirements of IAS 36. However, IASC believed that it was not possible to eliminate that inconsistency without fundamental changes to IAS 11 and IAS 12. IASC had no plans to revise IAS 11 or IAS 12.

BCZ 6 IAS 19 Employee Benefits contains an upper limit on the amount at which an enterprise should recognise an asset arising from employee benefits. Therefore, IAS 36 does not deal with such assets. The limit in IAS 19 is determined on a discounted basis that is broadly compatible with the requirements of IAS 36. The limit does not override the deferred recognition of certain actuarial losses and certain past service costs.
BCZ 7 IAS 39 Financial Instruments: Recognition and Measurement sets out the requirements for impairment of financial assets.
BCZ 8 IAS 36 is applicable to all assets, unless specifically excluded, regardless of their classification as current or non-current. Before IAS 36 was issued, there was no International Accounting Standard on accounting for the impairment of current assets other than inventories.