Note:
- It is not required to calculate both fair value less costs of disposal and value in use. It is
sufficient to calculate only one of the above amounts so long as that amount exceeds the
carrying amount.
5.3. Fair value less costs of disposal
• Fair value: the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
• Cost of disposal: incremental costs directly attributable to the disposal of an asset or CGU, excluding
finance costs and income tax expense (examples: legal costs, stamp duty, cost of removing assets
and direct incremental costs to bring an asset into condition for its sale)
5.4. Value in use
• Value in use (VIU) is the present value of estimated future cash flows expected to be derived from
the continuing use of an asset or CGU.
• Discounted cash flows (DCFs) utilized for a VIU calculation incorporate:
o Estimate of expected future cash flows
o Expectations about possible variations of these cash flows
o Discount rate
o Uncertainty inherent in the price of asset
o Other relevant factors that market participants would reflect in pricing the future cash flows
(such as liquidity).
5.4.1. Estimating future cash flows
a) Basis
- Cash flows must be pre-tax amounts based on budgets formally approved by management.
b) Prohibited cash flows
- Future restructuring not yet committed
- Improving or enhancing the asset’s performance
- Finance activities (because borrowing costs are already reflected in the discount rate)