Property, plant and equipment schedules template includes a line “Impairment charge”, which is essentially an expense that is recognized after certain tests have been made for particular cash generating units (we’ll cover them in our future posts). When the expense is recognized in the accounts, it’s not all over yet.
Something has got to be disclosed in the Annual Report and what is almost always neglected besides showing the expense as part of the schedule, is additional information describing some of the key aspects of the charge. Readers of the Annual Report are entitled to know why the charge was made in the first place. So there’s the first disclosure – what and why was written off in value. But when this is the easiest part what usually is more not only sensitive, but trickier to disclose is the measurement. Yes, you did a test, but in addition to give a true and fair view of the financial performance and position of a company, the readers need to know which assumptions were used. The assumptions may be numerical meaning growth rates, margins etc, but also assumptions like some products are outdated or some regulation may make sales for particular products harder etc. You have to disclose all key assumptions that helped you in reaching the result you did. What’s more, a sensitivity of the discount rate in case of cash flows projections needs to be disclosed also. The discount rate needs to be presented nevertheless, but when certain aspects taken into account when forming the rate are estimated and if different discount rates estimated effect the charge recognized considerably, this should also be disclosed alongside with management comments why this particular rate was finally used.
The Property, plant and equipment schedules template includes a Impairment charge, but don’t forget that you need to disclose additional information inside this note if any impairment has been recognized.