Q.No.2: A manufacturing division of Pindi Garments has the following non-current assets, which are stated at their carrying values at 31 December 2014: (Marks 12)

Rs. m Rs. m

Goodwill 35

Property, Plant and equipment:

Land and buildings 160

Plants and machinery 55

215

250

Because these assets are used to produce a specific product, it is possible to identify the cash flows arising from their use. The management of Pindi Garments believes that the value of these assets may have become impaired, because a major competitor has developed a superior version of the same product and, as a result, sales are expected to fall.

The following additional information is relevant:

Forecast cash inflows arising from the use of the assets are as follows:

Year ended 31 December Rs. m

Year 5 92.5

Year 6 80

Year 7 65

1. The directors are of the opinion that the market would expect a pre-tax return of 10% on an investment in an entity that manufactures a product of this type.
2. The land and buildings are carried at valuation. The surplus relating to the revaluation of the land and buildings that remains in the revaluation reserve at 31 December 2014 is Rs. 32.5 million. All other non-current assets are carried at historical cost.
3. The goodwill does not have a market value. It is estimated that the land and buildings could be sold for Rs. 135 million and the plant and machinery could be sold for Rs. 25 million, net of direct selling costs.

Required

1. Calculate the impairment loss that will be recognized in the accounts of Pindi Garments.
2. Explain how this loss will be treated in the financial statements for the year ended 31 December 2014. (Subject is Financial Reporting 2 Answer is require immegiately)