Accounting choices under ifrs and their effect on over-investment in capital expenditures

2.9 Impairment of assets 
Non-current assets are reviewed for impairment whenever events or changes in circumstances 
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for 
the amount by which the asset’s carrying value exceeds its recoverable amount. The recoverable 
amount is the higher of an asset’s fair value less costs to sell and value in use. Value in use is 
based on the present value of the future cash flows relating to the asset. For the purposes of 
assessing impairment, assets are grouped at the lowest levels for which there are separately 
identifiable cash flows (cash generating units). Any assessment of impairment based on value in 
use takes account of the time value of money and the uncertainty or risk inherent in the future 
cash flows. The discount rates applied are post-tax and reflect current market assessments of the 
time value of money and the risks specific to the asset for which the future cash flow estimates 
have not been adjusted. 
SIG plc annual report and accounts 2006 (pages 62-63) 
PROPERTY, PLANT AND EQUIPMENT 
Property, plant and equipment is shown at original cost to the Group less accumulated 
depreciation and any provision for impairment. 
Depreciation is provided at rates calculated to write off the cost less estimated residual value of 
property, plant and equipment on a straight line basis over their estimated useful lives as follows: 
Freehold buildings – 50 years 
Leasehold buildings – period of lease 
Plant and machinery (including motor vehicles) – 3 to 8 years 
Residual values, which are based on market rates, are reassessed annually. 
IMPAIRMENT OF NON-CURRENT ASSETS 
Determining whether a non-current asset is impaired requires an estimation of the “value in use” 
and/or the “fair value less costs to sell” of the cash-generating units (“CGU”) to which the non-
current asset has been allocated. The value in use calculation requires an estimate of the future 
cash flows expected to arise from the CGU and a suitable discount rate in order to calculate 
present value. The key assumptions for these value in use calculations are those regarding 
discount rates, growth rates and expected changes to selling prices and direct costs. The Directors 
estimate discount rates using pre tax rates that reflect current market assessments of the time 
value of money and the risks specific to the individual CGU. 
Cash flow forecasts are prepared using the following year’s operating budget approved by the 
Directors and an appropriate projection of cash flows based upon industry expectations for up to 
five years. After this period, the growth rates applied to the cash flow forecasts are no more than 
2% and do not exceed the long term average growth rate for the industry. 
The carrying amount of non-current assets at 31 December 2006 was £449.560m (2005: 
£337.105m). No instances of impairment of non-current assets have been noted as a result of the 
impairment reviews performed in the year. 

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APPENDIX C 
FIGURES AND TABLES 

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44 
FIGURE C1 
Frequency of Impairment Losses for PPE