Our company produces a few categories of products.

Due to increasing competition in our country, one of our divisions started to make loss and we performed the impairment review of the assets within that division.

We estimated future cash flows and found out that there was impairment due to lower sales projections.

Our manager refused to recognize an impairment loss. Instead, he came up with the idea to modify the production line and forecast cash flows from the production line based on what we are planning to make there.

The question is that if we modify the production line, can we avoid booking the impairment loss?


In general – no.

For the impairment testing, you can’t include cash flows from the asset based on the future conditions (such as planned changes), just on the current conditions.

You can include some capital expenditure, but only to the extent that it maintains the asset’s capacity (e.g. day-to-day servicing).

The only exception is when an entity is committed to restructuring under IAS 37 – if this is the case, then yes, you can count with future cash flows based on restructured operations.

Please, be careful about conditions in IAS 37 for “being committed”. The entity is committed to the restructuring when there is a constructive obligation to restructure and it’s when the entity has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring.

Therefore, mere management’s intentions are not enough. Instead, there must be a detailed formal plan, that was announced to those affected (employees, etc.) and/or it has started to be implemented.

It is doable, but a lot of work is required.

Please see IAS 36.39, IAS 37.72.