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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FIGURE C1
Frequency of Impairment Losses for PPE