What is the difference between recoverable amount and FVLCD?

Recoverable amount is the higher of FVLCD and value in use under IAS 36 paragraph 6. FVLCD is one of the two measurement bases — the market-participant exit price less direct costs of disposal. Recoverable amount is the framing concept; FVLCD is one specific measure within it.

Can I use FVLCD only or VIU only?

Yes — IAS 36 paragraph 19 permits using a single measure where there is reason to believe it materially exceeds the other. In practice, VIU only is common for assets held for use; FVLCD only is common for assets held for sale or with active market evidence. Where headroom is thin, calculating both is the defensible position.

What costs are included in costs of disposal?

Direct, incremental costs that would not have been incurred if the asset were not disposed of — legal fees, transaction costs, transfer taxes, regulatory fees, and costs of removal where relevant. General administrative costs and income taxes are not included.

Why use a pre-tax discount rate for VIU?

IAS 36 paragraph 55 specifies a pre-tax rate for VIU. The reason is that the cash flows used in VIU are pre-tax cash flows — including a tax charge would double-count. In practice, many teams derive a post-tax WACC and gross it up to a pre-tax rate using the marginal effective tax rate.

How is FVLCD different from fair value under IFRS 13?

FVLCD is the fair value of the asset less the direct costs of disposal. The fair value component defers entirely to IFRS 13's definition (market-participant exit price). The "less costs of disposal" component is an IAS 36 addition that the standalone IFRS 13 fair-value measure does not include.

When does VIU exceed FVLCD?

VIU exceeds FVLCD when the entity's planned use produces more value than the market would price. The typical drivers: operational synergies with other CGUs in the group, planned but not yet executed investment, regulatory positioning, customer-base advantages, or technology integration that a market participant would not replicate.

When does FVLCD exceed VIU?

FVLCD exceeds VIU when the market sees more value than the entity's current use realises — strategic acquirers with synergies the entity does not plan to capture, optionality the entity does not plan to harvest, or under-utilised assets where another operator would deploy them more intensively.

Are the disclosure requirements the same for both measures?

No. IAS 36 paragraph 134 requires disclosure of the basis used for the recoverable amount calculation. When VIU is the basis, the disclosure includes the discount rate, growth rate assumptions, and sensitivity to reasonably possible alternative assumptions. When FVLCD is the basis, the disclosure includes the valuation technique, key assumptions, and Level 3 disclosures under IFRS 13.

Accounting Framework

Recoverable Amount vs FVLCD

Recoverable amount vs FVLCD under IAS 36 — what each measure is, when value in use exceeds FVLCD, and how CFOs structure the impairment file.

Under IAS 36 (UK and global IFRS), the recoverable amount of an asset or CGU is the higher of fair value less costs of disposal (FVLCD) and value in use (VIU). FVLCD is the market-participant exit price less direct costs to dispose. VIU is the entity-specific present value of expected future cash flows from the asset in its current use. The recoverable amount is the framing concept; FVLCD and VIU are the two measurement bases. Where headroom is thin, calculating both is the defensible position.

Criteria	Fair Value Less Costs of Disposal (FVLCD)	Value in Use (VIU)
Perspective	Market participant — what a typical buyer would pay	Entity-specific — what the asset is worth to us in current use
Cash flow basis	Market-participant assumptions about the asset's use	Entity's own planned use, including operational synergies
Discount rate	Market-participant rate (defers to IFRS 13)	Pre-tax, CGU-specific
Standard reference	IAS 36 paragraphs 25-29; IFRS 13 (fair value measurement)	IAS 36 paragraphs 30-57
Inputs	Observable market evidence preferred; transaction comparables; multiples	Board-approved cash-flow forecast; terminal value; pre-tax discount rate
Costs of disposal	Subtracted (legal, transaction, transfer taxes)	Not applicable
Synergies	Only those a market participant would price	All entity-specific synergies included
Future capex	Market-participant baseline	Excluded for value-enhancement; included for maintenance
Best for	Assets held for sale; assets with active market evidence	Assets held for use; integrated CGUs
Audit focus	Market evidence quality, multiple selection, comparable transactions	Cash-flow assumptions, discount rate derivation, sensitivity
Disclosure trigger	Required when material to the impairment conclusion	Required under IAS 36 paragraph 134 when VIU is the binding measure
Practical complexity	Moderate — requires comparable evidence	High — requires full DCF model and discount-rate derivation

When to Use Each Approach

Fair Value Less Costs of Disposal (FVLCD)

Assets held for sale or with active market evidence
Stand-alone CGUs where multiples evidence is plentiful
Disposal scenarios where the exit-price assumption is realistic
When the entity has reason to believe FVLCD exceeds VIU

Value in Use (VIU)

Assets held for use within an integrated CGU
CGUs where operational synergies are not captured by market participants
Cases where comparable transaction evidence is limited
When the entity has reason to believe VIU exceeds FVLCD

Our Verdict

Recoverable amount is the framing concept; FVLCD and VIU are the two measurement bases. FVLCD answers what the market would pay; VIU answers what the asset is worth to the entity. The recoverable amount is whichever is higher. IAS 36 paragraph 19 permits using a single measure where it clearly exceeds the other, but where headroom is thin, calculating both is the defensible position.

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Recoverable Amount vs FVLCD

When to Use Each Approach

Fair Value Less Costs of Disposal (FVLCD)

Value in Use (VIU)

Our Verdict

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