Corporate Accounting and Reporting: Definition of Key Terms, Calculation of Recoverable Amount, Value in Use, Fair Value Less Cost of Disposal, and Impairment Computation

CORPORATE ACCOUNTING AND REPORTING
1. Definition of key terms
(a) Value –in-use: It is defined as the present value which the company is expecting to
derive from a particular asset or a cash generating unit.(Anon., 2017)
(b) Useful life: It is defined as the period over which the company is expecting to use the
asset or the number of units of a product company is expecting to produce from such
asset;(AssetWorks, LLC , 2018)
(c) Cash Generating Unit : It is the smallest identifiable group in the block of group of
company which has its own asset and liabilities and generate inflows which are of
independent nature from the cash flows of other assets of the company;(Anon., 2017)
(d) Depreciable Amount: It is stated as the cost of the asset or fair market values less
residual value;( Defined Term., 2012)
(e) Fair Value: It is the value that shall be derived on disposition of an asset in the market
in an orderly transaction between a buyer and seller;
(f) Impairment loss: It is represented as difference between the recoverable amount and
the carrying amount in the books of the company. Further, carrying value shall be
greater than recoverable amount;
(g) Recoverable Amount: It is the higher of fair value less cost of its disposal and value
in use.(Kin Lo, 2016)
2. Calculation of Recoverable Amount, Value in use , Fair value less cost of disposal
In terms of AASB 136- Impairment of Asset Fair value less cost of disposal is computed
in the manner provided here-in-below:
When Fair value of an asset or a liability is measured, one shall take into consideration
the characteristics of the asset or liability, if such characteristic shall be taken into
account by the market participants while valuing the property. Further, the pricing of the
asset shall be determined under an orderly transaction between the market participants a
transaction date under the market conditions..
Further, the calculation assumes that the transaction takes place in principal market or in
the next most advantageous market.
The model of computation assumes that the market participants are acting in their
economic best interest.

Further the following fact shall not be taken into consideration while determining the
price of the orderly transaction:
(a) Better price is available is next best advantageous market;
Further, the valuation technique to be adopted by the enterprise shall be such that
maximum data is available for valuation of fair value, maximises the observable inputs
usability and minimises the usability of unobservable inputs.
Fair Market Value for non-financial asset: It shall be determined by taking into account a
market participant ability to generate benefits of economic nature from the use of such
asset in its highest and best use or by selling it to the other who shall do the same;
Thus fair market value computation encompassed the details provided above as stated
under AASB 13.
In addition any cost which shall be incurred to materialise the disposal of asset other than
those that have been recognised as liabilities shall be reduced from fair market value to
ascertain fair market value less cost of disposal. For ex cost such as legal cost, stamp
duty etc.
For computing the value in use of an asset one needs to look at the following elements:
(a) An estimate of the expected future cash flows that company is expecting to derive
from such asset or cash generating unit;
(b) Analysis of the expectation of possible variations in the timing or amount of the cash
flows;
(c) The time value of money which is determined by the current market risk free rate of
interest;
(d) Uncertainty price inherent to such asset;
(e) Factors that are relevant like liquidity, that market participant shall take into
consideration while estimating the future cash flows of such asset.
Further, one must take consideration of the following while determining the value in use
of an asset:
(a) The estimated future cash inflows and outflows to be generated from such asset and
revenue at its ultimate disposal;
(b) Applying appropriate discount rate for determining the present value of such cash
flows.