We got the following query from our visitor:
Besides an independent valuation, what other alternate approach can we use to test for impairment on property.
Ahead of we proceed to respond to the following query, let's assume that the property above relates to building, land or any other industrial associated building employed by the Corporation within the course of undertaking ordinary business..
To respond to your query, in the event the property is involved inside the ordinary course of enterprise ( e.g. shop house exactly where an enterprise do its trading), then the substitute approach contains:
- Discounted Cash Flow Evaluation
- Profitability forecast for the subsequent five years
- Purchased market cost with the related property within the vicinity nearby
To elaborate on point 1 and 2 previously, in the event the company is in a position to create enough cash flow and be in profit position. The auditor can conclude that there is absolutely no indication of impairment on property. Because the asset employed is enough to sustain the company operations with the Corporation, and therefore no impairment.
Apart from that, this auditor could obtained the final transaction price with the related property in nearby region to examine the market price to book value with the property, so as to assess the existence of indication of impairment.
