# Formula to calculate the recoverable amount

The formula to calculate the recoverable amount is:

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

## 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 of time.

Example:

A company dedicated to producing electric vehicles expects its cash flows to increase significantly over the next 10 years, considering the normatively issued in later years concerning environmental care.

The calculation of the value in use is as follows, taking a discount rate of 11%. As you can see, the entity must discount to present value to the future cash flows that the entity expects to obtain over time.

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

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

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

establishes a series of elements that should reflect 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 value in use and impairment calculation

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

The assembly line of business presents the following assets.

The carrying amount at the end of the reporting period of the assets of this line is presented below.

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