Page 10 - 10. COMPILER QB - INDAS 36
P. 10

Year End              20X3-X4     20X4-X5    20X5-X6     20X6-X7    20X7-X8    Value in Use
         Quantity (5% increase p.a.)         10,000     10,500     11,025      11,576     12,155
         Price per Unit (3% increase p.a.)   200         206        212         219        225
         Estimated cash inflow             20,00,000   21,63,000   23,37,300   25,35,144  27,34,875
         Misc. Cash inflow disposal proceeds                                              80,000
         Total Estimated cash inflow       20,00,000   21,63,000   23,37,300   25,35,144  28,14,875
         Cost per unit                        160        162        165         168         171
         Estimated Cash outflow            -16,00,000   -17,01,000   -18,19,125   -19,44,768  -20,78,505

         Misc. Cash outflow (Maint. Cost)                         -50,000
         Total Est. Cash Outflow           -16,00,000   -17,01,000   -18,69,125   -19,44,768  -20,78,505
         Net Cash Flows                     4,00,000   4,62,000   4,68,175    5,90,376   7,36,370
         Disc. Factor 8%                    0.9259      0.8573     0.7938      0.7350     0.6806
         Discounted Future Cash Flows      3,70,360    3,96,073   3,71,637    4,33,926    5,01,173   20,73,169


        Q5 (RTP May 20 & MTP OCT 20 – 5 Marks)
        PQR  Ltd.  is  a  company  which  has  performed  well  in  the  past  but  one  of  its  major  assets,  an  item  of

        equipment, suffered a significant and unexpected deterioration in performance. Management expects to use the
        machine  for  a  further  four  years  after  31st  March  20X6,  but  at  a  reduced  level.  The  equipment  will  be
        scrapped after four years. The financial accountant for PQR Ltd. has produced a set of cash-flow projections
        for the equipment for the next four years, ranging from optimistic to pessimistic. The CFO thought that the
        projections were too conservative and he intended to use the highest figures each year. These were as follows:

                                                                                 Rs ʼ000
                                          st                                       276
                              Year ended 31  March 20X7
                                          st                                       192
                              Year ended 31  March 20X8
                                          st                                       120
                              Year ended 31  March 20X9

                                          st                                       114
                              Year ended 31  March 20Y0
        The  above  cash  inflows  should  be  assumed  to  occur  on  the  last  day  of  each  financial  year.  The  pre-tax
        discount rate is 9%. The machine could have been sold at 31st March 20X6 for Rs 6,00,000 and related selling
        expenses in this regard could have been Rs 96,000. The machine had been re-valued previously, and at 31st
        March 20X6 an amount of Rs 36,000 was held in revaluation surplus in respect of the asset. The carrying

        value of the asset at 31st March 20X6 was Rs 660,000. The Indian government has indicated that it may
        compensate the company for any loss in value of the assets up to its recoverable amount.
        Calculate impairment loss, if any and revised depreciation of asset. Also suggest how Impairment loss, if any
        would be set off and how compensation from the government be accounted for?

        Solution
        Carrying amount of asset on 31st March 20X6 = Rs 6,60,000
        Calculation of Value in Use:

                              Year ended       Cash flow Rs    Discount factor @ 9%   Amount Rs
                           st                    2,76,000             0.9174           2,53,202
                          31  March, 20X7


                                                                                                            10. 9
   5   6   7   8   9   10   11   12   13   14   15