In Accounting, Explain What Is Recoverable Amount

March 13th, 2010 Comments off
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Recoverable amount is the HIGHER of the:

  • Fair value less those expenses relating to the disposal/sale of the asset and
  • Value in use of an asset

A simple illustration:

Company XYZ has a plant & machinery which has a fair value of $100,000 and estimate that the costs to dispose of the asset should be $ 15,000. If the company decides to continue to use the asset the present value of the net cash flow from the asset is estimated to be $70,000

To calculate the recoverable amount, it is the higher of:

(a) Fair value less costs to sell viz: $100,000-$15,000=$85,000 and

(b) Value in use of the asset viz: $70,000

which in this case is the fair value less costs to sell i.e. $85,000

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