There are two types of values one can find for an asset when we talk about an assets recoverable amount as compared to its carrying value. When we compare the carrying value with the recoverable amount, the latter is considered to be highest of the two, either \u201cvalue in use\u201d or \u201cfair value less cost to sell\u201d.<\/p>\n
By definition \u201cvalue in use\u201d means the present value of the future cash flows expected to be derived from an asset, where \u201cfair value less cost to sell\u201d is defined as the price that would be received from selling the asset less any costs required and needed to make the sale.\u00a0<\/p>\n
Effectively one should always consider the reliability of the fair value since it\u2019s more difficult to get reliable information for basing this value really. Are there enough similar comparable transactions you can get from the market? Maybe you have an offer for the asset and it can be considered as a normal transaction between unrelated parties under normal market conditions? If neither of the above can be said about the basis for the value, how can you really say it\u2019s the fair value for the asset?<\/p>\n
When it comes to value in use, it\u2019s mostly about estimating the cash inflows and outflows for the asset. It may very well be that you cannot determine revenues specific to this asset, but for the cash generating unit the asset is part of so as such the whole value in use is determined for the asset part of the smallest cash-generating unit separable in your business. And remember, it\u2019s not just the revenues, but also related expenses and future investments for future periods being estimated.<\/p>\n","protected":false},"excerpt":{"rendered":"
There are two types of values one can find for an asset when we talk about an assets recoverable amount as compared to its carrying value. When we compare the carrying value with the recoverable amount, the latter is considered to be highest of the two, either \u201cvalue in use\u201d or \u201cfair value less cost […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[57],"tags":[],"class_list":["post-4865","post","type-post","status-publish","format-standard","hentry","category-1-5-5-valuation"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t