Stenberg plc is preparing its financial statements for the year ended 30 November 2018. On 1 May 2018, the company purchased a factory for the manufacture of optical disks, paying £24,000,000. The factory will be depreciated over its estimated life of 10 years using the straight line method on a full year basis with no residual value. 

The asking price for the factory had been £30,000,000. However, Stenberg plc estimated the net present value of the factory’s future expected net cash flows at £28,500,000 and the price eventually agreed with the vendor was £24,000,000. 

During October 2018 a rival company announced that it had patented a new technology which has been enthusiastically greeted by the major players in the industry. Stenberg plc now feels that it may be necessary to revise downwards its expectations for the factory. It now believes that the net present value of the expected net cash flows from the factory as at 30 November 2018 was £20,500,000. The net realisable value of the factory was estimated at £14,000,000 as at 30 November 2018.

Required:
Discuss whether or not there is evidence of impairment and describe how the factory should be treated in the financial statements for the year ended 30 November 2018.

(CIPFA)