kim2_0001688 - The cash flows used in the calculation...

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The cash flows used in the calculation should be pre-tax cash flows and a pre-tax discount rate should be applied to calculate the present value. Calculating a value in use therefore calls for estimates of future cash flows and the possibility exists that an enterprise might come up with over optimistic estimates of cash flows. The proposed IAS therefore states the following: (a) Cash flow projections should be based on ‘reasonable and supportable’ assumptions (b) Projections of cash flows, normally up to a maximum period of five years, should be based on the most recent budget or financial forecasts. (c) Cash flow projections beyond this period should be obtained by extrapolating shortterm projections, using either a steady or declining growth rate for each subsequent
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year (unless a rising growth rate can be justified). The long- term growth rate applied should not exceed the average long-term growth rate for the product, market, industry or country, unless a higher growth rate can be justified.
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