14.4. Impairment of property, plant and equipment, intangible assets, goodwill and right-of-use assets
SELECTED ACCOUNTING PRINCIPLES
Impairment of property, plant and equipment, intangible assets, goodwill, right-of-use assets
At the end of the reporting period, the Group assesses whether there are indicators that an asset or cash-generating unit (CGU) may be impaired or any indicators that the previously recognised impairment should be reversed.
When indications of impairment have been identified, an impairment test is carried out, under which the Group estimates the recoverable amount of this asset or CGU by determining the fair value less costs to sell or value in use using an appropriate discount rate, whichever is higher.
A cash-generating unit to which goodwill has been assigned, is tested for impairment annually, and also when there are indications of impairment.
The recoverable amount is determined on the CGU level, to which the asset belongs.
Assets that do not generate the independent cash flows are grouped on the lowest level on which cash flows, independent from cash flows from other assets, are generated (CGU).
Recognition and reversal of impairment allowance of property, plant and equipment, intangible assets and right-of-use assets is recognised in other operating expenses and other operating income.
Impairment losses relating to goodwill are recognised in other operating expenses and are not reversed.
ESTIMATES AND JUDGMENTS
Impairment of property, plant and equipment, intangible assets, goodwill, right-of-use assets
The Group conducted asset impairment tests based on discounted cash flow models. The assumptions made in the models with regard to the evolution of expected future cash flows, as well as the method of calculating the discount rates, are the most important areas of estimates. In the developed scenarios of future expected cash flows, the critical assumptions concerned mainly the forecasts of key macroeconomic parameters and the estimated probability of the impact of prices of CO2 emission allowances on revenues from the sale of products.
An important judgment adopted by the Management Board of PKN ORLEN was assigning probability weights to individual macroeconomic scenarios. The scenario analysis was used to value the assets of the refining and petrochemical segments at PKN ORLEN, ORLEN Unipetrol and ORLEN Lietuva.
As at 31 December 2021, the ORLEN Group identified the indicators to conduct tests for impairment of assets in accordance with IAS 36 „Impairment of Assets” related to:
- the macroeconomic environment in 2021,
- the increase in discount rates due to an increase in reference interest rates,
- adopting macroeconomic assumptions for years 2022-2030 i.e. for the period compliant with the ORLEN Group Strategy ORLEN2030 and the Financial Plan of PKN ORLEN and the ORLEN Group for 2022, adopted on 27 January 2022,
- signing conditional agreements for the sale of fixed assets (4 fuel terminals) covered by the remedial measures specified in the conditional consent of the European Commission of 14 July 2020 for a concentration consisting in the acquisition by the PKN ORLEN of control over Grupa LOTOS S.A.