The net present value (NPV) of economic benefits / cash flows (inflows and outflows), including disposal value, that an asset generates over the period of its use or as long as it is still in use. The discounting used for calculating NPV reflects the time value of money (TVM) and the deal of risk associated with that asset.

It is calculated by discounting the future cash flows obtainable by the owner from the continued use of an asset. In cases where an asset does not generate any cash flows but still has some value for a reason or another, its value in use may be calculated on a basis of its depreciated replacement cost.

Value in use would be equal to the recoverable amount of an asset if:

Value in use > (fair value – costs of disposal)

In calculation, value in use depends on cash flow projections and the selection of the proper discount rate which reflects market assessments of time value of money (for the periods until the end of the asset’s useful and risks specific to the asset whose future cash estimates have not been adjusted.

The discount rate selected and applied for testing assets for impairment should not be entity-specific: i.e., not specific to the capital structure of the entity. However, comparables should be used, instead: benchmark rates relating to companies in a similar industry/ sector operating within borders.