In the intricate world of finance, understanding the value of assets and their potential for income generation is fundamental. This is where value-in-use assessments come into play, providing key insights into the economic value of assets.
Value-in-use assessment is a specialised process that estimates the present value of future cash flows an asset or cash-generating unit (CGU) is expected to produce. It is commonly used in impairment testing under the International Financial Reporting Standards (IFRS) to determine whether an asset's carrying value exceeds its recoverable amount, helping businesses make informed financial and operational decisions.
Value-in-use assessment enables businesses to understand the economic potential of their assets accurately. It provides valuable insights into whether assets are overvalued on the company's books and may require impairment. It also aids in strategic planning, allowing for effective resource allocation based on each asset's estimated value-in-use.
In the dynamic business environment, it's not uncommon for the carrying value of assets to become misaligned with their actual worth due to various internal and external factors such as market fluctuations, technological changes, or operational inefficiencies. Conducting value-in-use assessments helps businesses identify such discrepancies early and take corrective actions, such as impairment or asset divestiture, ensuring the financial statements accurately reflect the company's value.
Why do businesses often need to conduct a value-in-use assessment?
- To estimate an asset's or cash-generating unit's fair value based on revenue potential over the remaining useful life
- To support strategic decision-making - such as selling or retaining specific assets, evaluating assets or business segments, and/or carving-out business segments
- To conduct impairment testing - to provide an accurate measure for allocating purchase price in the purchase price allocation exercise as per International Accounting (IAS-36) and International Financial Reporting Standards (IFRS-3)
- To calculate Residual Value - evaluating value to be assigned to certain asset classes to remove from overall enterprise value for the residual value
At ValuStrat, our value-in-use assessment consultants clearly analyse your assets' economic value, enabling informed decision-making, strategic planning, and accurate financial reporting. We aim to share meticulous, clear, and actionable insights to enhance your business's financial health and growth.
Our value-in-use assessment services include the following:
- Cash flow projections: Our team prepares robust and realistic cash flow projections for your assets or CGUs, considering all relevant factors such as expected revenue, costs, growth rates, and market trends.
- Impairment testing: Under IFRS guidelines, we conduct rigorous impairment tests to identify any assets whose carrying value exceeds their recoverable amount, ensuring your financial statements are compliant and accurate.
- Valuation modelling: We use sophisticated valuation models and techniques to calculate the present value of future cash flows, precisely calculating your asset's value-in-use.
- Reporting and support: Our team provides comprehensive reports detailing our findings and offers continuous support to help you implement any necessary financial adjustments.