# Essay Example on How to calculate Recoverable amount Value in use Fair

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How to calculate Recoverable amount Value in use Fair value less cost of disposal Recoverable Amount Recoverable amount of an assets is the greater of its fair value less cost of disposal and its value in use The concept of recoverable amount mainly focuses on the greatest value that can be obtained from the assets after selling or using of it The recoverable amount is measured by following formula as Recoverable amount Fair Value Cost of Disposal Recoverable amount Value in Use The companies need to record their carrying amount of assets if it exceeds the recoverable amount on balance sheet according to the accounting principles For example if the assets of the is impaired by any means or expected to be damaged there has to be formal estimation of the recoverable amount IAS 36 states guidance for recoverable amount as 1 If the fair value less cost of use cant be calculated than the value in use is equal to the recoverable amount of asset 2 If the asset is to be sold than the recoverable amount is calculated as fair value less cost of use If the fair value of an asset less cost of disposal or value in use of asset seems to higher than the carrying amount of the assets then recoverable amount should not necessarily be calculated as the assets is not really impaired Value in Use

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Value in use is present value of future cash flows derived from the use of an asset

There has to be determination of assets value in use as part of a evaluation to see if there is impairments on assets value According to the IAS 36 VIU should reflect the present value of the future cash flows Normally on daily life present values are subject to determined by traditional or expected cash flow approach If there has been a belief that there is impairment on value of assets companies are required to perform a formal estimation of the recoverable amount IAs 36 also provides guidelines on as if the fair value of asset less than cost of disposal cant be determined the recoverable amount should be equal to its value in use There are some factors like cash flows Discount rate and other things that needs to be discussed while evaluating value in use Cash flows should be considered for future derived from the use of asset and also the variation on time of cash flow The discount rate is another important factor to be considered The discount rate is used to discount assets benefits for the company during the time So the time value of money should be considered while evaluating value in use The other factor that could affect are liquidity and the ability to sell the assets The cash flow estimation is normally based on supporting predictions with recent forecasts as well as planned budgets It can also been seen that value in use is normally estimated as of less than the highest and best use of the assets So the value is normally lower than its market value The value in use can be calculated as of Value in Use Present Value of the assets benefits Fair value less cost of disposal Fair value less cost of disposal consists of fair value and cost of disposal Fair value is the price that would be received from sale of an assets or paid to transfer the liability between markets at the measurement date Fair value less cost to sell is the price that would be received by selling the assets less any cost required to make the sale of it Fair value is determined IN accordance with the IFRS 13 fair value measurement

Cost of disposals are the direct added costs only as they don't contain non existing costs and overheads The following factors should be studied to calculate the fair value 1 The certain assets or liability as of subject to measurement 2 As of non financial asset the valuation is highest and best of use condition 3 As of measurement the most advantageous market for the assets and liabilities As of measurement guidance the condition location any restriction on buy or sales of it should be studied Fair value measurement assumes an orderly transaction at measurement date between market parties Fair value also considers valuation technique the most popular of the techniques are as market approach cost approach income approach Under market approach price and other relevant information generated by market and under cost approach the amount that would be required to replace the service capacity of an asset And income approach deals with cash inflows or income and expenses to a discounted amount reflecting current market expectations about the future amounts But in some cases single valuation technique would be appropriate whereas in others multiple valuation technique could be appropriate IFRS 13 requires an entity disclose information that helps users as 1 For assets and liabilities that are measured at fair value on certain basis after initial recognition with certain techniques used to develop those measurements 2 For fair value measurements using significant unobservable inputs the effect of the measurement on profit or loss or other comprehensive income for the given period The formula for fair value is Fair value Recoverable amount Cost of disposal Hence the calculations of the fair value less cost of disposal Recoverable amount and value in use can be calculated for an entity References ASICS v Healy Ors 2011 Centro case https www money zine com definitions investing dictionary recoverable amounts Deegan C 2010 Australian financial accounting 6th edn Wiley NSW https www iasplus com en standards ias ias36

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