Formula to calculate the recoverable amount

The formula to calculate the recoverable amount is:

Recoverable amount = the higher of fair value and value in use.

Formula to calculate the recoverable amount

The recoverable amount is used to determine whether an asset or group of assets is impaired.

In other words, if the recoverable asset amount is below its carrying amount, it will be necessary to recognize an impairment loss for the difference generated.

Before continuing to read the post, put your knowledge into practice.

Recoverable amount - Question 1

Value in use calculation

The value in use is the present value of the cash flows that an asset will generate during a certain period.


A company dedicated to producing electric vehicles expects its cash flows to increase significantly in the next 10 years, considering the regulations issued in subsequent years regarding environmental care.

The calculation of value in use is as follows, taking a discount rate of 11%.

cantidad recuperable

As you can see, the entity must discount the present value of the future cash flows that the entity expects to obtain over time.

Thus, the value in use in this example is equal to 2,585.

To perform this calculation, the following formula was used = (1+ 11%) ^-10 x 470 for year 1.

It is necessary to proceed in the same way for the other years.

IAS 36 establishes a series of elements that must be reflected in the calculation of the value in use of an asset:


  • An estimate of the future cash flows the entity expects to derive from the asset.
  • Expectations about possible variations in the amount or timing of those future cash flows;
  • The time value of money, represented by the current market risk-free rate of interest;
  • The price for bearing the uncertainty inherent in the asset;
  • Other factors, such as illiquidity, that market participants would reflect in pricing the future cash flows the entity expects to derive from the asset.

Example of value in use and impairment calculation


A company dedicated to the production of computers has 2 lines of business.

On the one hand, the assembly line, and on the other hand, the design line.

The assembly business line has the following assets.

The carrying amount of this line at the end of the period follows.

cantidad recuperable

In addition, the entity considers the fair value of the line of business at the end of the previous period to be 45,000.

On the other hand, the value in use of this business line is presented below.

The company considers a discount rate of 9%

cantidad recuperable

As we can analyze, the value in use is greater than the fair value.

For this reason, this will be the value that we must take to determine if the business line is impaired.

Recoverable amount = Fair value versus value in use

Recoverable amount = 45,000 vs. 69,380

The next step is to compare the carrying amount of the line of business against its value in use.

Impairment = 69,390 – 92,000 = 22,620

We must now allocate this impairment to the assets of the cash-generating unit.

As established by IAS 36, the impairment generated must be attributed in the first instance to the goodwill of the cash-generating unit, based on the following formula.

Remaining impairment = goodwill – impairment

Remaining impairment = 19,000 – 22,620 = 3,620

We must distribute the balance of 3,620 to the other assets of the business  as follows.

cantidad recuperable


Total carrying amount of the unit = 30,000 + 25,000 + 18,000 = 73,000

Property, plant and equipment: 30,000 / 73,000 = 41%
Intangibles: 25,000 / 73,000 = 34%
Inventories: 18,000 / 73,000 = 25%

Assigned Impairment

Property, plant and equipment: 3,620 x 41% = 1,488
Intangibles: 3,620 x 34% = 34% 1,240
Inventories: 3,629 x 25% = 893

If you want more information about the impairment and the recoverable amount of a cash-generating unit, I invite you to read the following post.

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Recoverable amount - Question 2

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