the CGU’s or group of CGUs’ carrying amount to exceed its recoverable amount:
(i) the amount by which the CGU’s or group of CGUs’ recoverable amount
exceeds its carrying amount;
(ii) the value assigned to the key assumption;
(iii) the amount by which the value assigned to the key assumption must change,
after incorporating any consequential effects of that change on the other
variables used to measure recoverable amount, in order for the CGU’s or
group of CGUs’ recoverable amount to be equal to its carrying amount.
[IAS 36.134].
As set out above, there are separate disclosure requirements for those CGUs or groups
of CGUs that taken individually do not have significant amounts of goodwill in
comparison with the total carrying value of goodwill or of intangible assets with an
indefinite useful life. [IAS 36.135].
First, an aggregate disclosure has to be made of the ‘not significant’ amounts of goodwill
or of intangible assets with an indefinite useful life. If some or all of the carrying amount
of goodwill or intangible assets with indefinite useful lives is allocated across multiple
CGUs or group of CGUs, and the amount so allocated to each CGU or group of CGUs is
not significant in comparison with the entity’s total carrying amount of goodwill or
intangible assets with indefinite useful lives, that fact shall be disclosed, together with
Impairment of fixed assets and goodwill 1543
the aggregate carrying amount of goodwill or intangible assets with indefinite useful
lives allocated to those CGUs or group of CGUs.
In addition, if the recoverable amounts of any of those CGUs or group of CGUs are
based on the same key assumption(s) and the aggregate carrying amount of goodwill or
intangible assets with indefinite useful lives allocated to them is significant in
comparison with the entity’s total carrying amount of goodwill or intangible assets with
indefinite useful lives, an entity shall disclose that fact, together with:
(a) the aggregate carrying amount of goodwill allocated to those CGUs or group of CGUs);
(b) the aggregate carrying amount of intangible assets with indefinite useful lives
allocated to those CGUs or group of CGUs;
(c) a description of the key assumption(s);
(d) a description of management’s approach to determining the value(s) assigned to
the key assumption(s), whether those value(s) reflect past experience or, if
appropriate, are consistent with external sources of information, and, if not, how
and why they differ from past experience or external sources of information;
(e) if a reasonably possible change in the key assumption(s) would cause the aggregate
of the CGU’s or group of CGUs’ carrying amounts to exceed the aggregate of their
recoverable amounts:
(i) the amount by which the aggregate of the CGU’s or group of CGUs’
recoverable amounts exceeds the aggregate of their carrying amounts;
(ii) the value(s) assigned to the key assumption(s);
(iii) the amount by which the value(s) assigned to the key assumption(s) must
change, after incorporating any consequential effects of the change on the
other variables used to measure recoverable amount, in order for the
aggregate of the CGU’s or group of CGUs’ recoverable amounts to be equal to
the aggregate of their carrying amounts. [IAS 36.135].
Example 9 in IAS 36’s Illustrative Examples gives an indication of the types of
assumptions and other relevant information the IASB envisages being disclosed
under this requirement. The IASB expects disclosure of: budgeted gross margins,
average gross margins, expected efficiency improvements, whether values assigned
to key assumptions reflect past experience, what improvements management
believes are reasonably achievable each year, forecast exchange rates during the
budget period, forecast consumer price indices during the budget period for raw
materials, market share and anticipated growth in market share. If a reasonable
possible change in a key assumption would cause the CGU’s carrying amount to
exceed its recoverable amount then the standard would require an entity to give
disclose the value assigned to this key assumption and the amount by which the
value assigned to the key assumption must change in order to cause an impairment.
[IAS 36.134(f)(ii)].
An example of disclosures including key assumptions and sensitivities is given by
Vodafone Group Plc. The following extract from the annual report of Vodafone plc
focuses on the current period disclosures. While disclosures for comparative years are
1544 Chapter 20
required, and given by Vodafone in the annual report, these were for simplicity purposes
not included in the following extract.
Extract 20.3: Vodafone Group Plc (2018)
Notes to the consolidated financial statements [extract]
4. Impairment
losses
[extract]
Following our annual impairment review, the impairment charges recognised in the consolidated income statement within
operating profit in respect of goodwill are stated below. The impairment losses were based on value in use calculations.
2018
2017 2016
Cash generating unit:
Reportable segment:
€m
€m €m
Romania Other
Europe –
–
569
–
–
569
For the year ended 31 March 2018, the Group recorded a non-cash charge of €3,170 million(€2,245 million net of
tax), included in discontinued operations, as a result of the re-measurement of Vodafone India’s fair value less costs
of disposal. See note 7 “Discontinued operations and assets and liabilities held for sale” for further details.
For the year ended 31 March 2017, the Group recorded a non-cash impairment charge of €4,515 million in respect of the
Group’s investment in India which together with the recognition of an associated €840 million deferred tax asset led to
an overall €3,675 million reduction in the carrying value of Vodafone India, the results of which are included in
discontinued operations (see note 7 “Discontinued operations and assets and liabilities held for sale”) for further details.
Goodwill
The remaining carrying value of goodwill at 31 March was as follows:
2018
2017
€m
€m
Germany
12,479 12,479
Italy
3,654 3,654
Spain
3,814 3,814
19,947 19,947
Other
6,787 6,861
26,734 26,808
Key assumptions used in the value in use calculations
The key assumptions used in determining the value in use are:
Assumption How
determined
Projected adjusted
Projected adjusted EBITDA has been based on past experience adjusted for the following:
EBITDA
> voice and messaging revenue is expected to benefit from increased usage from new
customers, especially in emerging markets, the introduction of new services and traffic
moving from fixed networks to mobile networks, though these factors will be offset by
increased competitor activity
, which may result in price declines, and the trend of falling
termination and other regulated rates;
> non-messaging data revenue is expected to continue to grow as the penetration of 3G
(plus 4G where available) enabled devices and smartphones rise along with higher data
bundle attachment rates, and new products and services are introduced; and
Impairment of fixed assets and goodwill 1545
> margins are expected to be impacted by negative factors such as the cost of acquiring and
retaining customers in increasingly competitive markets and the expectation of further
termination rate cuts by regulators and by positive factors such as the efficiencies
expected from the implementation of Group initiatives.
Projected capital
The cash flow forecasts for capital expenditure are based on past experience and include the
expenditure
ongoing capital expenditure required to roll out networks in emerging markets, to provide
voice and data products and services and to meet the population coverage requirements of
certain of the Group’s licences. Capital expenditure includes cash outflows for the purchase
of property, plant and equipment and computer software.
Projected licence
The cash flow forecasts for licence and spectrum payments for each operating company for
and spectrum
the initial five years include amounts for expected renewals and newly available spectrum.
payments
Beyond that period, a long-run cost of spectrum is assumed.
Long-term growth
For businesses where the five year management plans are used for the Group’s value in use
rate
calculations, a long-term growth rate into perpetuity has been determined as the lower of:
> the nominal GDP rates for the country of operation; and
> the long-term compound annual growth rate in adjusted EBITDA in years six to ten
estimated by management.
Pre-tax risk
The discount rate applied to the cash flows of each of the Group’s operations is generally
adjusted discount
based on the risk free rate for ten year bonds issued by the government in the respective
rate
market. Where government bond rates contain a material component of credit risk, high
quality local corporate bond rates may be used.
These rates are adjusted for a risk premium to reflect both the increased risk of investing in
equities and the systematic risk of the specific Group operating company. In making this
adjustment, inputs required are the equity market risk premium (that is the required increased
return required over and above a risk free rate by an investor who is investing in the market
as a whole) and the risk adjustment, beta, applied to reflect the risk of the specific Group
operating company relative to the market as a whole.
In determining the risk adjusted discount rate, management has applied an adjustment for the
systematic risk to each of the Group’s operations determined using an average of the betas of
comparable listed mobile telecommunications companies and, where available and
appropriate, across a specific territory. Management has used a forward-looking equity
market risk premium that takes into consideration both studies by independent economists,
the average equity market risk premium over the past ten years and the market risk premiums
typically used by investment banks in evaluating acquisition proposals.
Year ended 31 March 2018
The table below shows the key assumptions used in the value in use calculations.
Assumptions used in value in use calculation
Germany
Spain
Italy Romania
% % % %
Pre-tax risk adjusted discount rate
8.3
9.7
10.4
9.8
Long-term
growth
rate
0.5 1.5 1.0 1.5
Projected adjusted EBITDA1
3.7 5.9 (2.6) 2.6
Projected capital expenditure2
16.6-18.8
16.8-17.4
12.1-13.3
11.9-14.6
Notes:
1
Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing.
2
Projected capital expenditure, which excludes licenses and spectrum, is expressed as capital expenditure as a percentage of revenue in the initial five years for all cash-generating units of the plans used for impairment testing.
1546 Chapter 20
Sensitivity analysis
Other than as disclosed below, management believes that no reasonably possible change in any of the above key
assumptions would cause the carrying value of any cash-generating unit to materially exceed its recoverable amount.
The estimated recoverable amount of the Group’s operations in Germany, Spain and Romania exceed their carrying
values by €7.7 billion, €0.3 billion and €nil respectively. The changes in the following table to assumptions used in the impairment review would, in isolation, lead to an impairment loss being recognised for the year ended 31 March 2018:
Change required for carrying value to equal the recoverable amount
Germany Spain
Romania
pps pps pps
Pre-tax risk adjusted discount rate
2.0
0.2
0.1
Long-term growth rate
(2.3)
(0.2)
(0.1)
Projected adjusted EDITDA1 (3.3)
(0.3)
(0.1)
Projected capital expenditure2
16.3 1.4 0.4
Notes:
1
Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing.
2
Projected capital expenditure, which excludes licenses and spectrum, is expressed as capital expenditure as a percentage of revenue in the initial five years for all cash-generating units of the plans used for impairment testing.
The carrying values for Vodafone UK, Portugal, Ireland and Czech Republic include goodwill arising from their
acquisition by the Group and/or the purchase of operating licences or spectrum rights. While the recoverable amounts
for these operating companies are not materially greater than their carrying value, each has a lower risk of giving rise
to impairment that would be material to the Group given their relative size or the composition of their carrying value.
The changes in the following table to assumptions used in the impairment review would have, in isolation, led to an
impairment loss being recognised in the year ended 31 March 2018.
Changes required for carrying value to equal recoverable amount
UK
Ireland
Portugal
Czech
Republic
pps pps pps
pps
Pre-tax risk adjusted discount rate
0.5
0.6
1.0
3.1
Long-term
growth
rate (0.6) (0.7) (1.1)
(4.0)
Projected adjusted EBITDA1
(0.8) (1.0) (1.5)
(4.0)
Projected capital expenditure2
3.2 4.2 6.4 16.9
1
Projected adjusted EBITDA is expressed as the compou
nd annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing.
2
Projected capital expenditure, which excludes licenses and spectrum, is expressed as capital expenditure as a percentage of revenue in the initial five years for all cash-generating units of the plans used for impairment testing.
Following the recent merger, the recoverable amount for VodafoneZiggo is not materially greater than its carrying value. If adverse impacts of economic, competitive, regulatory or other factors were to cause significant deterioration in the operations of VodafoneZiggo and the entity’s expected future cash flows, this may lead to an impairment loss being recognised.
References
1
IFRIC Update, September 2010.
2 IFRIC Update, September 2010.
1547
Chapter 21
Capitalisation of
borrowing costs
1 INTRODUCTION ...........................................................................................1549
2 THE REQUIREMENTS OF IAS 23 ............................................................... 1550
2.1
Core principle ...................................................................................................... 1550
2.2 Scope
..................................................................................................................... 1550
3 QUALIFYING ASSETS .................................................................................. 1550
3.1
Inventories ............................................................................................................ 1551
3.2
Assets measured at fair value ............................................................................ 1551
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 305
