Impairment Calculator
for Agriculture
Calculate value in use for agricultural processing facilities, farmland improvements, and equipment CGUs. Covers the IAS 36 assets that fall outside IAS 41's biological asset scope.
CGU / Asset
Identify the cash-generating unit or individual asset being tested and enter its carrying amount from the balance sheet.
Discount & terminal growth rate
The pre-tax discount rate reflects the time value of money and risks specific to the asset. The terminal growth rate is applied to cash flows beyond the explicit forecast period using the Gordon Growth Model.
Forecast cash flows
Enter projected pre-tax cash flows for each forecast year. IAS 36.33 limits explicit forecasts to five years unless a longer period can be justified.
Fair value less costs of disposal
IAS 36.18 defines recoverable amount as the higher of value in use and FVLCD. If FVLCD cannot be determined, value in use alone is used.
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IAS 36.6: An asset is impaired when its carrying amount exceeds its recoverable amount.
IAS 36.18: Recoverable amount is the higher of fair value less costs of disposal and value in use.
IAS 36.30: Value in use reflects the present value of future cash flows expected to be derived from the asset, discounted at a pre-tax rate.
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IAS 36 impairment testing for Agriculture
Agricultural entities face a split-scope situation similar to banking and insurance. Biological assets and agricultural produce at the point of harvest fall under IAS 41, which uses a fair-value-based model. But the processing facilities, farmland improvements, irrigation infrastructure, storage buildings, and equipment used to farm those biological assets sit under IAS 16 and within IAS 36's scope. A mid-market agricultural processor (grain milling, dairy processing, meat packing) carries significant fixed assets in processing plant and equipment. Goodwill from acquiring competitor operations or supply chain businesses also falls under IAS 36. The agricultural sector's exposure to weather events, commodity price volatility, and regulatory changes (EU Common Agricultural Policy reform, water usage restrictions) creates a high frequency of external impairment indicators under IAS 36.9.
VIU modelling for agricultural processing assets requires separating the value created by the biological assets (IAS 41 scope) from the value created by the processing infrastructure (IAS 36 scope). A dairy processing plant's VIU should reflect the margin earned from processing milk into cheese and butter, not the value of the raw milk itself. The cash inflows are processing fees or the spread between input costs and processed product revenue. Discount rates for agricultural processing reflect the cyclicality of commodity markets and the geographic concentration of operations. A processor sourcing milk from one region faces higher supply risk than one with diversified sourcing. European agricultural processors typically apply pre-tax WACCs between 7.5% and 10.0%. Terminal growth rates should reflect long-term food demand growth, which Eurostat data puts at 1.0% to 1.5% for Western European processed food markets.
Auditors encounter several recurring issues in agricultural impairment files. Management teams sometimes include government subsidy income in VIU projections without assessing whether those subsidies will continue over the forecast period. If subsidies depend on annual government allocation (as many CAP payments do after the 2023 reform), including them at current levels for five years without adjustment overstates VIU. IAS 36.33(b) requires projections to use reasonable and supportable assumptions about future conditions. Another issue involves shared assets: a farmstead that includes a processing facility, worker housing, and storage silos needs careful CGU definition. If the processing facility could operate with milk sourced from external suppliers (not just the entity's own herd), the processing operation may be a separate CGU from the farming operation.
For agricultural processing CGUs, input the carrying amount of processing plant, equipment, and allocated goodwill. Exclude biological assets and bearer plants (these sit under IAS 41 and IAS 16 respectively, with IAS 41 handling fair value measurement). Set the discount rate between 7.5% and 10.0%, adjusting for commodity concentration and geographic risk. For terminal growth, 1.0% is a conservative but defensible figure for European processed food markets. Run sensitivity on both the input commodity price assumption (a 15% increase in raw material costs) and the discount rate (plus 100 basis points) to identify where headroom evaporates.