(IFRS) for Small and Medium-sized Entities (SMEs)

IFRS FOR SMES – JULY 2009disposal of the asset in an arm’s length transaction between knowledgeable,willing parties, after deducting the costs of disposal. In determining this amount,an entity considers the outcome of recent transactions for similar assets withinthe same industry.Value in use27.15 Value in use is the present value of the future cash flows expected to be derivedfrom an asset. This present value calculation involves the following steps:(a)(b)estimating the future cash inflows and outflows to be derived fromcontinuing use of the asset and from its ultimate disposal, andapplying the appropriate discount rate to those future cash flows.27.16 The following elements shall be reflected in the calculation of an asset’s value inuse:(a)(b)(c)(d)(e)an estimate of the future cash flows the entity expects to derive from theasset.expectations about possible variations in the amount or timing of thosefuture cash flows.the time value of money, represented by the current market risk-free rate ofinterest.the price for bearing the uncertainty inherent in the asset.other factors, such as illiquidity, that market participants would reflect inpricing the future cash flows the entity expects to derive from the asset.27.17 In measuring value in use, estimates of future cash flows shall include:(a)(b)(c)projections of cash inflows from the continuing use of the asset.projections of cash outflows that are necessarily incurred to generate thecash inflows from continuing use of the asset (including cash outflows toprepare the asset for use) and can be directly attributed, or allocated on areasonable and consistent basis, to the asset.net cash flows, if any, expected to be received (or paid) for the disposal ofthe asset at the end of its useful life in an arm’s length transaction betweenknowledgeable, willing parties.The entity may wish to use any recent financial budgets or forecasts to estimatethe cash flows, if available. To estimate cash flow projections beyond the periodcovered by the most recent budgets or forecasts an entity may wish to extrapolatethe projections based on the budgets or forecasts using a steady or declininggrowth rate for subsequent years, unless an increasing rate can be justified.27.18 Estimates of future cash flows shall not include:(a)(b)cash inflows or outflows from financing activities, orincome tax receipts or payments.© IASCF 161