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ACC204 Advanced Financial Accounting

tag 0 Download 7 Pages / 1,749 Words tag 28-06-2021


Calculation of recoverable amount is based on the same concept on which valuation of inventory has been done that is cost or net realizable value whichever is lower. AASB 136 states that:-

  • If in case of the asset whose net fair value which means fair value minus the disposing cost is not determinable, then the amount which is recoverable  from the asset will be equivalent to value in use
  • And if intention of the concern is to dispose of the asset in coming years, then the amount which is recoverable from the asset will be equivalent to the net fair value.

The value in use is calculated using the following formula:-

Present value factor using appropriate discount rate X Expected cash flows in future

In the above the expected cash flows in future refers to the estimated cash flows that the assets will generate in future which is expected by an entity which are variable in amount or timing for cash flows are uncertain.

Appropriate discount rate is the pre tax discount rate which has been used to show running market scenario which includes value for time in terms of money and associated risks not adjusted for future cash flows.

When VIU consider as recoverable amount in calculation of impairment and recoverable amount which is value in use is lesser than the carrying value of asset, then fair value less cost of disposal is required to calculate.

Fair value means price which has been decided among buyer and seller with mutual consent in a transaction where it buyer and seller are fully aware about each facts and are free to enter into transaction. According to International Financial Reporting Standard Board, fair value means the amount coming from disposing an asset or paying a obligation in normal event in which market members are involved on particular date which can be used specifically for financial statements over a period of time (Xu, Anandarajan and Curatola, 2011)

Where market price of the specific assent or cash generating units is not available, then fair value less cost of disposal of asset or CGU will calculated using Discounted cash flow approach.

Disclosures and impacts of impairment of non-current assets in the financial statements:

The value relevance of goodwill impairment Research in Accounting Regulation, 

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