Value in use is defined as which of the following?

Value in use is defined as which of the following?

• A. Present value of estimated future cash flows
• B. Current market value of the asset
• C. Replacement cost of the asset
• D. Net realizable value of the asset

Answer: (A)

Value in use is the present value of the estimated future cash flows expected to be derived from using the asset in its current use, including any cash flows from disposal, discounted to reflect the time value of money and the risks specific to the asset that haven’t been captured in the cash flows themselves. This concept is used in impairment testing to see whether the asset’s carrying amount is recoverable; if the carrying amount exceeds value in use, an impairment loss is recognized. The other concepts describe different measurements: current market value relates to fair value in the market, replacement cost is the cost to replace the asset, and net realizable value is the net amount recoverable from selling the asset.

Value in use is the present value of the estimated future cash flows expected to be derived from using the asset in its current use, including any cash flows from disposal, discounted to reflect the time value of money and the risks specific to the asset that haven’t been captured in the cash flows themselves. This concept is used in impairment testing to see whether the asset’s carrying amount is recoverable; if the carrying amount exceeds value in use, an impairment loss is recognized. The other concepts describe different measurements: current market value relates to fair value in the market, replacement cost is the cost to replace the asset, and net realizable value is the net amount recoverable from selling the asset.