Quick Answer: What Is The Recoverable Amount Of An Asset?

What is a recoverable amount?

The recoverable amount is defined as the higher of the ‘fair value less costs to sell’ and the ‘value in use’.

• Any impairment loss is recognised as an expense in profit or loss for assets carried at cost..

How do you calculate recoverable amount?

ExplanationIf the asset’s fair value less the cost of disposal cannot be determined, the recoverable amount is equal to its value in use.If the company intends to sell the asset, the recoverable amount is equal to its fair value less the cost of disposal.

What is carrying amount and recoverable amount?

Carrying amount: the amount at which an asset is recognised in the balance sheet after deducting accumulated depreciation and accumulated impairment losses. Recoverable amount: the higher of an asset’s fair value less costs of disposal* (sometimes called net selling price) and its value in use.

Why do you impair assets?

An asset may become impaired as a result of materially adverse changes in legal factors that have changed the asset’s value, significant changes in the asset’s market price due to a change in consumer demand, or damage to its physical condition.

How do you record an impairment loss?

An impairment loss is an asset’s book value minus its market value. You must record the new amount in your books by writing off the difference. Write the asset’s new value on your future financial statements. And, you may also need to record a new amount for the asset’s depreciation.

What is disposal cost in accounting?

Definition. Disposal value in accounting terms is the value of an asset or belonging, at which this asset should be sold or disposed off without incurring any loss to the company.

What is the fair value of an asset?

In other words, the fair value of an asset is the amount paid in a transaction between participants if it’s sold in the open market. A willing buyer and seller have agreed upon this value. Due to the changing nature of open markets, however, the fair value of an asset can fluctuate greatly over time.

What is the meaning of recoverable?

Recoverable definitions Capable of being regained or recovered. adjective.

What is an example of an impairment?

Impairment in a person’s body structure or function, or mental functioning; examples of impairments include loss of a limb, loss of vision or memory loss. Activity limitation, such as difficulty seeing, hearing, walking, or problem solving.

How do you calculate the value of an asset?

Value in use equals the present value of the cash flows generated by an asset or a cash generating unit. Impairment loss, if any, under IFRS is determined by comparing the carrying amount of an asset of CGU to the higher of the fair value less cost to sell or the value in use of the asset.

What is fair value less cost to sell?

A type of net recoverable amount where the value of an asset is defined as the difference between its fair value and the costs an entity incurs on disposal of that asset (cost to sell).

What is CGU in accounting?

A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. … The recoverable amount of a CGU is the same as for an individual asset.