What is recoverable amount under IFRS 36?

What is recoverable amount under IFRS 36?

• A. The lower of fair value less costs of disposal and value in use (PV calc)
• B. The sum of undiscounted cash flows
• C. The higher of fair value less costs of disposal and value in use (PV calc)
• D. The carrying amount

Answer: (C)

Under IFRS 36, the recoverable amount of an asset or a cash‑generating unit is the higher of two values: value in use and fair value less costs of disposal. Value in use is the present value of the future cash flows you expect to derive from the asset or CGU, discounted at a pre‑tax rate that reflects the time value of money and the risks specific to the asset. Fair value less costs of disposal is what you would obtain from selling the asset in an orderly transaction, minus the costs of disposal. The recoverable amount serves as a ceiling for impairment: if the asset’s carrying amount exceeds this recoverable amount, an impairment loss is recognized to reduce the carrying amount to recoverable amount. If the carrying amount is already below recoverable amount, no impairment is recorded.

Under IFRS 36, the recoverable amount of an asset or a cash‑generating unit is the higher of two values: value in use and fair value less costs of disposal. Value in use is the present value of the future cash flows you expect to derive from the asset or CGU, discounted at a pre‑tax rate that reflects the time value of money and the risks specific to the asset. Fair value less costs of disposal is what you would obtain from selling the asset in an orderly transaction, minus the costs of disposal. The recoverable amount serves as a ceiling for impairment: if the asset’s carrying amount exceeds this recoverable amount, an impairment loss is recognized to reduce the carrying amount to recoverable amount. If the carrying amount is already below recoverable amount, no impairment is recorded.