Impairment losses take place when the book value of an asset or cash generating unit exceeds the respective recoverable value, which is considered as the fair value less costs to sell or the value in use, whichever is greater. The calculation of fair value less costs to sell is based on information available from sales transactions involving similar assets or market prices, less any additional costs that would be incurred to dispose of those assets. The value in use is based on the discounted cash flow model. Cash flow derives from the Company’s business plan. Since this is an ongoing business, from the fifth projection year a perpetual rate of nominal growth of cash flow was estimated (Note 14).
Any reorganization activities to which the Company has not committed itself as at the financial statements disclosure date, or any material future investments aimed at improving the asset base of the cash generating unit being tested, are excluded for the purposes of impairment testing.
The recoverable value is sensitive to the discount rates used under the discounted cash flow method, as well as to the expected future cash receivables and the growth rates of revenue and expenses used for extrapolation purposes. Adverse economic conditions may lead to significant changes in these assumptions.
The main non-financial assets valued using this method include goodwill based on future profitability recorded by the Company (note 14).