Question [Total 14 marks] (Adjusted to 10% equivalent)

Somewhat Besar Bhd (SWB) is a listed company and is in the manufacturing industry. It makes various consumer products that are sold in the local and foreign markets.

SWB had invested in what was then deemed to be state of the art manufacturing equipment in January 2019 at a cost of RM100,000,000. The plant was estimated to have a useful of 10 years.

Over time, it was noted that the products that were manufactured by this equipment were no longer in demand as the new technologies are now available that has resulted in better products being offer for sale by competitors. The products offered by competitors also were seen to have more innovative and appealing features. As a result, SWB experienced decrease in sales in the last two years to 2022.

The management of SWB has undertaken an assessment of its business and the environment it operates in. It is of the opinion that the manufacturing equipment can still be used, including producing alternative products that may still be able to generate sales for the company. A forecast of future cash flows for the next five years, expected to be derived by the company from the manufacturing equipment is as shown below:

Year Future cash flows (RM000)

2019 11,600

2020 9,800

2021 8,500

2022 7,615

On the other hand, the general manager if SWB has made some external enquiries and has determined that if SWB were to cease production using this equipment and were to instead sell the equipment on the second-hand market, it is expected to fetch a value of RM34 million (after accounting for cost of disposal).

SWB has a financial year end of 31 December.

1. Based on MFRS 136 Impairment of Assets, list down what are the indications that an asset may be impaired, based on external and internal sources of information.

(3.5 marks)

2. Calculate the value in use of the plant. You are advised that the appropriate pre-tax discount rate to be used is 7.5%.

(6 marks)

3. Calculate the carrying amount of the manufacturing equipment, after providing for depreciation up to end of 2019 (i.e., the carrying amount as at 31 December 2019).

(1.5 marks)

4. Determine if there shall be a need to provide for impairment of the manufacturing equipment of the company. If so, calculate the amount to be recognised in the Statement of Profit or Loss for the year ended 31 December 2022.

(3 marks)