Business, Legal & Accounting Glossary
The value of an asset calculated by discounting the future cash flows obtainable from it’s continued use.
This is the value of an asset calculated by discounting the future cash flows obtainable from it’s continued use.
This includes any costs associated with it’s disposal.
In instances where an asset does not generate any cash flow but is considered valuable for other reasons, it’s value in use may be calculated on the basis of it’s depreciated replacement cost.
The value in use of an asset is its present net worth, calculated by estimating its net future value, including its disposable value if the asset becomes impaired. The rationale is that assets should not be carried at more than their recoverable amount value (i.e. their fair value less cost of disposal).
Value in use is the net credit value of a cash flow or other benefits that accrue to a specific owner for a specific use. It may be different from its market value. If special benefits, such as agglomeration benefits, extraordinary financing, grandfathered zoning, etc. accrue to the user, the value in use for the owner is higher than the market value. This is considered to be an investment value.
The value in use for an asset is the value or worth of that asset under a specific purpose (i.e. as it is being used at present). The value in use concept can be used for business valuation when determining the allocation of a purchase price. Entities are required to conduct impairment tests where there are indications of impairment to an asset or a cash-generating unit. This is also applicable to goodwill and other tangible assets acquired in business combinations.
The classical Economist, Adam Smith was quite intrigued by the disparity between “value in use” and “value in exchange”.
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This glossary post was last updated: 6th January, 2020 | 338 Views.