Impairment and interest (discount) rate

[Petr_H]

Hello,

May I kindly ask for help with the calculation of proper WACC under IAS 36?

The risk-free interest rate used for the calculation should:

a) over a 5-year period - it appears strange to me because CFs are extrapolated

b) over key asset's useful life -
One manual says: The discount rate is based on the return that investors would require if they were to choose an investment that would generate cash flows of amounts, timing and risk profile equivalent to those of the asset or CGU. In other words, the discount rate is based on a market participant's view of the asset or CGU as at the current date.
Therefore, although the cash flows in the value in use calculation are entity-specific, the discount rate is not. [IAS 36.56, A16, BCZ53]
It is stated in the same manual that CFs projections are calculated over asset useful life + ultimate disposal ( the key asset was not necessary to be recognized on the balance sheet before IFRS 16)

c) independent rate

Currency consideration:
When an asset or a CGU generates cash flows in a foreign currency, those cash flows are estimated in the foreign currency. They are discounted using a discount rate appropriate for the currency in which the cash flows are generated. [IAS 36.54]
Is it appropriate to use an EURO-based discount rate for CFs generated in CZK activities (EUR rates are currently lower than CZK rates)????

Thank you very much in advance

[Marek Muc]

If you're testing an individual asset, try to use the yield of government bonds (denominated in the same currency as the estimated cash flows) with a time horizon similar to the asset's useful life