What does 39-43 require?

The estimate covers three streams: the inflows the asset earns while it stays in use; the outflows that must be incurred to earn them, including spending to make the asset ready, provided they are directly attributable or allocated reasonably and consistently; and the net amount to be received or paid on disposal at the end of the asset's life. Cash flows and discount rate share the same inflation assumption: nominal cash flows with a nominal rate, real cash flows (still including specific price changes) with a real rate. Outflows include day-to-day servicing and future overheads attributable to the asset, and where the carrying amount does not yet include all outflows needed to make the asset ready for use or sale (a building under construction, an unfinished development project) those further outflows are included. To prevent double counting, inflows from assets generating largely independent inflows (such as receivables) and outflows for obligations already recognised as liabilities (payables, pensions, provisions) are left out.

AASB 136 Impairment of Assets 39-43: Composition of cash...

Other controls in Measuring recoverable amount: fair value less disposal costs, value in use and the discount rate (paragraphs 18 to 57, Appendix A) – AASB 136 Impairment of Assets

18-23 Recoverable amount principles: it is the higher of fair value less disposal costs and value in use, only one needs measuring if it exceeds carrying amount, value in use may stand alone where fair value cannot be reliably measured and vice versa, and recoverable amount is measured per asset unless the asset's cash inflows are not largely independent, in which case per cash-generating unit
24 Carry forward the prior detailed recoverable amount calculation for an indefinite-life intangible only if its unit's assets and liabilities have not changed significantly, the prior calculation showed comfortable headroom over carrying amount, and events since make a shortfall remote
28-29 Costs of disposal: deduct incremental costs directly attributable to disposal (legal costs, stamp duty and similar taxes, removal costs, costs of readying the asset for sale) other than those already recognised as liabilities, but not termination benefits or post-disposal downsizing costs
30-32 Value in use: reflect the expected future cash flows, their possible variability, the time value of money at the current risk-free rate, the price of bearing the asset's uncertainty and other market factors including illiquidity, either within the cash flows or within the discount rate, so that the result is the expected present value
33-38 Basis for cash flow projections: use reasonable and supportable assumptions representing management's best estimate with more weight on external evidence, start from the latest approved budgets or forecasts for at most five years unless a longer period is justified, exclude uncommitted restructurings and enhancements, and extrapolate beyond the budget period at a flat or falling growth rate capped at the long-term average for the product, industry, country or market unless a higher rate is justified
44-49 Project cash flows for the asset as it stands today: exclude the effects of restructurings the entity is not yet committed to and of future enhancements, include the benefits of a restructuring once committed under AASB 137 together with its provision, and include maintenance outflows and replacement of shorter-lived components as day-to-day servicing
50-54 Exclude financing cash flows and income tax from the projections, estimate end-of-life disposal proceeds on an arm's length basis using current prices for similar assets adjusted consistently for inflation, recognise that fair value ignores entity-specific synergies, rights and tax attributes, and estimate foreign currency cash flows in their own currency with a matching rate before translating at the spot rate
55-57,A15-A21 Discount rate: use a pre-tax rate reflecting the market's current pricing of money's time value and of asset-specific risks not already in the cash flows, derived from market rates for comparable assets or the cost of capital of a comparable listed entity, or from surrogates such as the entity's own cost of capital, incremental borrowing rate or other market rates adjusted for asset risk, country, currency and price risk and unaffected by the entity's capital structure

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MCP endpoint All AASB 136 Impairment of Assets controls