† Based on an extrapolation from preceding year cash flow using declining growth rates.

§ The present value factor is calculated as k = 1/(1+a)n, where a = discount rate and n = period of discount.
Schedule 3. Calculation and allocation of the impairment loss for the Country A cash-generating unit at the beginning of 20X2
     Goodwill CU    Identifiable assets CU    Total CU
Beginning of 20X2              
Historical cost    1,000    2,000    3,000
Accumulated depreciation (20X1)    -    (167)    (167)
Carrying amount    1,000    1,833    2,833
Impairment loss    (1,000)    (473)    (1,473)
Carrying amount after impairment loss    -    1,360    1,360

Example 3 - Deferred Tax Effects
A - Deferred Tax Effects of the Recognition of an Impairment Loss
Use the data for entity T as presented in Example 2, with supplementary information as provided in this example.
IE33 At the beginning of 20X2, the tax base of the identifiable assets of the Country A cash-generating unit is CU900. Impairment losses are not deductible for tax purposes. The tax rate is 40 per cent.
IE34 The recognition of an impairment loss on the assets of the Country A cash-generating unit reduces the taxable temporary difference related to those assets. The deferred tax liability is reduced accordingly.
     Identifiable assets before impairment loss CU    Impairment loss CU    Identifiable assets after impairment loss CU
Beginning of 20X2              
Carrying amount (Example 2)    1,833    (473)    1,360
Tax base    900    -    900
Taxable temporary difference    933    (473)    460
Deferred tax liability at 40%    373    (189)    184
IE35 In accordance with IAS 12 Income Taxes, no deferred tax relating to the goodwill was recognised initially. Therefore, the impairment loss relating to the goodwill does not give rise to a deferred tax adjustment.

B - Recognition of an Impairment Loss Creates a Deferred Tax Asset
IE36 An entity has an identifiable asset with a carrying amount of CU1,000. Its recoverable amount is CU650. The tax rate is 30 per cent and the tax base of the asset is CU800. Impairment losses are not deductible for tax purposes. The effect of the impairment loss is as follows:
     Before impairment CU    Effect of impairment CU    After impairment CU
Carrying amount    1,000    (350)    650
Tax base    800    -    800
Taxable (deductible) temporary difference    200    (350)    (150)
Deferred tax liability (asset) at 30%    60    (105)    (45)
IE37 In accordance with IAS 12, the entity recognises the deferred tax asset to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised.

Example 4 - Reversal of an Impairment Loss
Use the data for entity T as presented in Example 2, with supplementary information as provided in this example. In this example, tax effects are ignored.
Background
IE38 In 20X3, the government is still in office in Country A, but the business situation is improving. The effects of the export laws on T's production are proving to be less drastic than initially expected by management. As a result, management estimates that production will increase by 30 per cent. This favourable change requires T to re-estimate the recoverable amount of the net assets of the Country A operations (see paragraphs 110 and 111 of IAS 36). The cash-generating unit for the net assets of the Country A operations is still the Country A operations.
IE39 Calculations similar to those in Example 2 show that the recoverable amount of the Country A cash-generating unit is now CU1,910.
Reversal of Impairment Loss

IE40 T compares the recoverable amount and the net carrying amount of the Country A cash-generating unit.
Schedule 1. Calculation of the carrying amount of the Country A cash-generating unit at the end of 20X3
     Goodwill CU    Identifiable assets CU    Total CU
Beginning of 20X2 (Example 2)              
Historical cost    1,000    2,000    3,000
Accumulated depreciation    -    (167)    (167)
Impairment loss    (1,000)    (473)    (1,473)
Carrying amount after impairment loss    -    1,360    1,360
End of 20X3            
Additional depreciation (2 years)*    -    (247)    (247)
Carrying amount    -    1,113    1,113
Recoverable amount            1,910
Excess of recoverable amount over carrying amount            797
* After recognition of the impairment loss at the beginning of 20X2, T revised the depreciation charge for the Country A identifiable assets (from CU166.7 per year to CU123.6 per year), based on the revised carrying amount and remaining useful life (11 years).

IE41 There has been a favourable change in the estimates used to determine the recoverable amount of the Country A net assets since the last impairment loss was recognised. Therefore, in accordance with paragraph 114 of IAS 36, T recognises a reversal of the impairment loss recognised in 20X2.
IE42 In accordance with paragraphs 122 and 123 of IAS 36, T increases the carrying amount of the Country A identifiable assets by CU387 (see Schedule 3), ie up to the lower of recoverable amount (CU1,910) and the identifiable assets' depreciated historical cost (CU1,500) (see Schedule 2). This increase is recognised immediately in profit or loss.
IE43 In accordance with paragraph 124 of IAS 36, the impairment loss on goodwill is not reversed.

Schedule 2. Determination of the depreciated historical cost of the Country A identifiable assets at the end of 20X3
     Identifiable assets CU
End of 20X3    
Historical cost    2,000
Accumulated depreciation (166.7 × 3 years)    (500)
Depreciated historical cost    1,500
Carrying amount (Schedule 1)    1,113
Difference    387
Schedule 3. Carrying amount of the Country A assets at the end of 20X3
     Goodwill CU    Identifiable assets CU    Total CU
End of 20X3              
Gross carrying amount    1,000    2,000    3,000
Accumulated amortisation    -    (414)    (414)
Accumulated impairment loss    (1,000)    (473)    (1,473)
Carrying amount    -    1,113    1,113
Reversal of impairment loss    0    387    387
Carrying amount after reversal of impairment loss    -    1,500    1,500

Example 5 - Treatment of a Future Restructuring
In this example, tax effects are ignored.
Background
IE44 At the end of 20X0, entity K tests a plant for impairment. The plant is a cash-generating unit. The plant's assets are carried at depreciated historical cost. The plant has a carrying amount of CU3,000 and a remaining useful life of 10 years.
IE45 The plant's recoverable amount (ie higher of value in use and fair value less costs to sell) is determined on the basis of a value in use calculation. Value in use is calculated using a pre-tax discount rate of 14 per cent.
IE46 Management approved budgets reflect that:
(a) at the end of 20X3, the plant will be restructured at an estimated cost of CU100. Since K is not yet committed to the restructuring, a provision has not been recognised for the future restructuring costs.
(b) there will be future benefits from this restructuring in the form of reduced future cash outflows.

IE47 At the end of 20X2, K becomes committed to the restructuring.
The costs are still estimated to be CU100 and a provision is recognised accordingly. The plant's estimated future cash flows reflected in the most recent management approved budgets are given in paragraph IE51 and a current discount rate is the same as at the end of 20X0.
IE48 At the end of 20X3, actual restructuring costs of CU100 are incurred and paid. Again, the plant's estimated future cash flows reflected in the most recent management approved budgets and a current discount rate are the same as those estimated at the end of 20X2.

At the End of 20X0
Schedule 1. Calculation of the plant's value in use at the end of 20X0
Year    Future cash flows CU    Discounted at 14% CU
20X1    300    263
20X2    280    215
20X3    420*    283
20X4    520†    308
20X5    350†    182
20X6    420†    191
20X7    480†    192
20X8    480†    168
20X9    460†    141
20X10    400†    108
Value in use        2,051
* Excludes estimated restructuring costs reflected in management budgets.

† Excludes estimated benefits expected from the restructuring reflected in management budgets.