Relevant Valuation Data
A discounted cash flow method is usually used for later valuation. The business plan required for this is already available at least in part at most companies. We can help you with development of a business plan, extend a one-year budget beyond this period, or extend a pure income statement plan to include the balance sheet and the cash flow statement. Likewise, we will be glad to check the plausibility of your plans for you. Furthermore, we will also calculate the weighted capital costs and coordinate them with your auditor.
Calculation of the Carrying Amount
In the determination of the book value or carrying amount, it is necessary to consider the equivalence principle in particular. Accordingly, it should be remembered that the calculation is supposed to match the amount from the cash flow – otherwise, an illegitimate impairment may take place. Since the recoverable amount in its various forms represents an enterprise value, this must be compared with the operating net assets.
Calculation of the Recoverable Amount
The recoverable amount of the CGUs matches the higher amount from the fair value or the value in use. Both values are results of a discounted cash flow model. The calculation is specified by the amount of the underlying cash flows. The value in use must be adjusted for restructuring effects, for example; the fair value may only include those planning components that an average market participant would use.
Determination of impairment
Ultimately, the recoverable amount and the carrying value of the CGUs are always compared, hopefully with no impairment being discovered. Apart from the CGU structure, asset impairment tests and goodwill impairment tests are largely identical. Something else takes place, by contrast, in the calculation for the equity investment valuation under the German Commercial Code [Handelsgesetzbuch, HGB]. These values can usually be simply transferred, however.
Final Documentation of the Results
After the completion of the impairment test, the advisors at FAS AG will prepare reasonable documentation for you. It will meet the requirements of your auditor and pass any later audits by the German Financial Reporting Enforcement Panel [Deutsche Prüfstelle für Rechnungslegung, DPR].